Last week Expedia and Travelocity announced a new strategic partnership that will see Travelocity use Expedia to power its travel-booking engine starting sometime in 2014.

This “virtual merger,” as it was described by Hudson Crossing analyst Henry Harteveldt, essentially means Travelocity will now be reduced to a marketing arm of Expedia, which is in contrast to its current role as a competitor to the travel giant.

Expedia has just become an even larger player in the online travel industry. Photo credit Daniel O’Neil

The possibility of Expedia acquiring Travelocity outright was made unlikely by potential antitrust concerns, however, the agreement, which is between Expedia and Travelocity’s parent company Sabre Holdings, does include an option for Expedia to acquire undisclosed Travelocity assets at a later date.

Dennis Schaal, a travel journalist from Skift, sees this as a big win for Expedia and says that “the pact marks the obituary of the Travelocity turnaround attempt.”

Bloomberg Businessweek’s Justin Bachman echoes similar sentiments in his article “How Expedia Took Out Travelocity.”

But not everyone is pessimistic on the deal, with Terry Jones, founder and former CEO of Travelocity, pointing to Travelocity’s anemic growth as evidence that the company needed to make a change.

What is clear is that this partnership will increase the overall percentage of travel booking queries that go through Expedia, whose portfolio already includes huge travel sites like Hotwire.com, Hotels.com, eLong.net and Venere.com. Likewise, the amount of leverage that Expedia holds with its suppliers will increase, and it should allow for the company to negotiate on more favorable terms with its partners.

Sabre Holdings, to its credit, was able to stop Travelocity’s hemorrhaging of cash, and still retain its most prized asset, LastMinute.com, which has a huge following in the hard-to-crack European travel market.

LastMinute.com has been very successful in capturing market share in the crowded European travel market.

Announcements of massive cuts to Travelocity’s payroll are expected in the coming months, as Travelocity shifts into its marketing role and Expedia assumes the engineering and customer service costs of the travel engine. Though it is not known exactly how many people are employed by Travelocity, its parent company Sabre Holdings has more than 10,000 employees.